Health Care Reform and the Myth of Regulation

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Plenty of countries have created excellent health care systems largely through regulation–so why can’t we seem to do the same? The French and Japanese health care systems, for example, do not exclude private industry. They are not socialist in any sense of the word, and even retain a role for private insurance companies. What each system consists of is a regulatory apparatus that serves as the instrument for carrying out national policy–which is ensuring high quality health care for all the country’s citizens at a reasonable cost. The regulation works because you can’t get around it, and because it was designed–and actually operates–in the public interest.

To achieve anything similar in the United States, however, would require a virtual revolution in how things work. Our system of government regulations isn’t really what we think of as regulation at all. Rather, it throws up a facade of rules, which corporations walk right through. And no wonder, since although the regulations are supposed to be arrived at independently and designed for the public good, corporations have long had a hand in writing them, as well, thanks to the power of lobbying, campaign contributions, and the revolving door between business and government.

Rather than being enacted to protect the public from the limitless greed of private industry, many regulations are actually passed in support of corporations. The worst example is probably the Securities and Exchange Commission, which is just a clubhouse for Wall Street. Another top contender is the Food and Drug Administration. The basic legislation passed by Congress in the 1930s and updated in the early 1960s set policy governing the sale and use of drugs, which demanded that companies demonstrate the proposed product is safe and efficacious. But that policy directive was quickly abandoned. Today the drug manufacturers breeze through the FDA, setting their own rules for use, establishing their own prices, and exercising their monopoly rights within the patent system which in the case of pharmaceuticals is maintained for their benefit.

An excellent article in the December Harpers, “Understanding Obamacare”by Luke Mitchell, provides a clear understanding of how the American system of regulation in the corporate interest works. “The idea that there is a competitive ‘private sector’ in America is appealing, but generally false,” writes Mitchell. He continues:

No one hates competition more than the managers of corporations. Competition does not enhance shareholder value, and smart managers know they must forsake whatever personal beliefs they may hold about the redemptive power of creative destruction for the more immediate balm of government intervention. This wisdom is expressed most precisely in an underutilized phrase from economics: regulatory capture.

In the case of health care, Mitchell argues, “The health-care industry has captured the regulatory process, and it has used that capture to eliminate any real competition, whether from the government, in the form of a single-payer system, or from new and more efficient competitors in the private sector who might have the audacity to offer a better product at a better price.”

What’s really sharp about Mitchell’s analysis, though, is his recognition that “the polite word for regulatory capture in Washington is ‘moderation.’” As he explains it:

Normally we understand moderation to be a process whereby we balance the conservative-right-red preference for “free markets” with the liberal-left-blue preference for “big government.” Determining the correct level of market intervention means splitting the difference….The contemporary form of moderation, however, simply assumes government growth (i.e., intervention), which occurs under both parties, and instead concerns itself with balancing the regulatory interests of various campaign contributors. The interests of the insurance companies are moderated by the interests of the drug manufacturers, which in turn are moderated by the interests of the trial lawyers and perhaps even by the interests of organized labor, and in this way the locus of competition is transported from the marketplace to the legislature. The result is that mediocre trusts secure the blessing of government sanction even as they avoid any obligation to serve the public good. Prices stay high, producers fail to innovate, and social inequities remain in place.

This seems to me an extremely accurate depiction of the forces that have governed our current health care reform–from the start, when Big Pharma struck a secret deal with the White House, right up to the present moment, when Big Insurance’s bag man Joe Lieberman is deciding the fate of hundreds of millions of Americans.

And no wonder, since as Mitchell points out, the “moderation” formula has been perfected not by Republicans, but by Democrats: “The triangulating work that began two decades ago under Bill Clinton,” he writes, ”is reaching its apogee under the politically astute guidance of Barack Obama.” The piece goes a long way toward explaining how health care reform could have turned out so screwed up despite (or, as the case may be, because of ) Democratic control of the White House and Congress.

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